Phantom Wallet Faces $3.1M Lawsuit After $500K Theft Sparks Crypto Security Concerns

15/04/2025 admin

Key Takeaways:

Phantom Technologies is being sued for allegedly storing private keys in unencrypted browser memory, leading to a $500,000 crypto theft.
The stolen funds were liquidated using Phantom’s in-app swap tool, causing the collapse of the meme coin Wiener Doge.
The lawsuit, also targeting OKX, demands $3.1 million in damages and alleges violations of the Commodity Exchange Act.

A major lawsuit has shaken the crypto wallet space as Phantom Technologies, a leading Solana-based wallet provider, faces legal action after a significant security breach allegedly led to the loss of over $500,000 worth of digital assets. The breach also triggered a near-total collapse in the value of the meme coin Wiener Doge, with investors now seeking millions in damages.

Phantom Wallet Accused of Critical Security Flaw

A group of investors led by attorney Thomas Liam Murphy filed a lawsuit in the Southern District of New York on April 14, accusing Phantom of negligence, false advertising, and regulatory violations. At the core of the complaint is the claim that Phantom’s wallet stored users’ private keys in unencrypted browser memory, making them highly vulnerable to exploitation by malware and rogue browser extensions.

Murphy alleges that a hacker gained access to his Phantom wallet through a browser vulnerability, extracting his private key directly from active memory without needing to bypass multi-factor authentication. The cybercriminal then drained over $500,000 in Wiener Doge tokens, a Solana-based meme coin created by Murphy.

Using Phantom’s built-in “Swapper” tool, the stolen assets were converted into Solana (SOL) and sold off. The sudden liquidation caused a 99% drop in Wiener Doge’s value, with the price crashing from $3.10 to under $0.01 per token.

Alleged Negligence and Regulatory Violations

The lawsuit claims that Phantom not only failed to secure user assets but also knowingly ignored known vulnerabilities. According to court documents, Phantom executives were fully aware that private keys were stored in memory accessible to browser processes.

“Phantom did not merely fail to anticipate cyberattacks—it knew exactly how users were being compromised and made a calculated decision to remain silent,” the filing alleges.

Further, the plaintiffs argue that Phantom lacked basic safeguards typically found in custodial platforms, such as velocity checks, withdrawal limits, or geolocation anomaly detection. By contrast, exchanges like Coinbase have implemented such measures for years.

Despite Murphy reporting the hack immediately, Phantom allegedly responded that it was a noncustodial wallet, placing full responsibility on the user. The company reportedly denied liability, even though it had facilitated the transaction through its own interface.

Phantom–OKX Integration Sparks Controversy

The suit also alleges that OKX should have known that Phantom’s built-in Swapper function was not registered as a Swap Execution Facility (SEF) with the U.S. Commodity Futures Trading Commission (CFTC). OKX has previously pleaded guilty to money laundering-related charges, further intensifying scrutiny.

The plaintiffs assert that both Phantom and OKX functioned as unregistered trading platforms, despite advertising their tools as safe and user-controlled.

Plaintiffs Seek $3.1M in Damages

The group of 14 plaintiffs, including Murphy and his friends and family, is now seeking $3.1 million in damages—equivalent to $3.10 per lost Wiener Doge token. This figure reflects the token’s peak market price before the incident.

Phantom, which is used by over 10 million users and hosts $25 billion in digital assets, is accused of operating more like an exchange than a traditional crypto wallet.

The legal filing lists seven major claims against Phantom, including:

Operating as an unregistered trading platform
Negligence in security practices
Fraudulent marketing of security features
Aiding and abetting money laundering through OKX

Phantom’s Rapid Rise Now Under Fire

Phantom has grown rapidly, raising $150 million at a $3 billion valuation in January 2025. It now supports not only the Solana ecosystem but also networks like Sui and Base. Phantom reports helped to trade more over $20 billion in 2024, is the fastest-growing Web3 wallet by volume.

Though it is market position, this case draws attention to increasing consumer and regulatory scrutiny of wallets with integrated swap capabilities. Critics say these qualities raise retail investor risks by blurring the distinction between wallet and exchange.

Phantom has not yet published a thorough public reaction but has said it “strongly denies any allegations of wrongdoing” and hopes to show the assertions “entirely without merit.”

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